What does section 132 of the Taxation of Chargeable Gains Act 1992 do?

Section 132 extends the share reorganisation rules in sections 127 to 131 to the conversion of securities. When securities are converted into a different form, such as loan notes into shares, the conversion is not treated as a disposal for capital gains tax purposes. The new holding inherits the original base cost and acquisition date of the old securities.

What counts as a conversion of securities under section 132 TCGA 1992?

The definition is deliberately broad. It includes securities converted into shares in the same company, non-qualifying corporate bonds converted into qualifying corporate bonds and vice versa, a holder choosing conversion instead of cash redemption, and any compulsory exchange of securities carried out under legislation providing for compulsory acquisition.

How does section 132 interact with section 116 when a non-QCB is converted into a QCB?

When a non-qualifying corporate bond is converted into a qualifying corporate bond, section 132 brings the conversion within the reorganisation framework so that section 116 applies. A frozen gain or loss is calculated at the conversion date based on the old security's market value. That frozen gain or loss crystallises when the new QCB is eventually disposed of or redeemed.

Are there any exceptions to the reorganisation treatment under section 132?

Yes, there are two exceptions. First, a small cash premium received on conversion is not treated as a part disposal of the securities. Second, where gilt-edged securities are issued as compensation under a compulsory nationalisation scheme, the reorganisation rules are disapplied and normal disposal rules apply instead.

Taxation of Chargeable Gains Act 1992 section 132

Equation of converted securities and new holding

Section 132 extends the share reorganisation rules to the conversion of securities, so that converting one type of security into another is generally not treated as a disposal for capital gains tax purposes.

When securities are converted (for example, loan stock converted into shares, or a non-QCB converted into a QCB), the same "no disposal" reorganisation rules that apply to share reorganisations also apply to the conversion, with the new securities stepping into the shoes of the old ones.
"Conversion of securities" is broadly defined and covers conversions of securities into shares, conversions between qualifying corporate bonds and non-qualifying corporate bonds, optional conversions chosen instead of cash redemption, and compulsory exchanges of securities under statute.
"Security" is given a wide meaning, encompassing any loan stock or similar instrument — whether issued by the UK Government, a foreign government, a public or local authority, or a company, and whether secured or unsecured.
Two exceptions override the normal reorganisation treatment: a small cash premium received on conversion is not treated as a disposal, and the reorganisation provisions do not apply where gilt-edged securities are issued as compensation under a compulsory nationalisation scheme.

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